Why Traffic Lights Are Turning Green For BioAmber

Jim LaneAs many technologies pivot or delay, one train keeps chugging on
its route to biosuccinic acid, and markets like BDO, resins and
polyols.What is it about the business model that keeps on working?
What can every integrated biorefinery learn from its approach?

In Minneapolis, BioAmber (BIOA)
just announced a contract to supply a minimum of 80% of PTTMCC
Biochem’s total bio-succinic acid needs until the end of 2017.

PTTMCC Biochem is a joint venture established by Mitsubishi
Chemical and PTT, Thailand’s largest oil and gas company, to
produce and sell polybutylene succinate (PBS), a biodegradable
plastic made from succinic acid and 1,4 butanediol (BDO). The JV
partners are building a PBS plant in Map Ta Phut, Rayong, Thailand
that will have an annual production capacity of 20,000 tons, and
is expected to be operational in the first half of 2015.

Now, let’s put this in context. According to NNFCC last year, the
global market for succinic acid is between 30,000 and 50,000
tonnes per year. If this were mobile phones, it’d be like coming
out of the box with a billion hand-set order. A single offtake
deal, with a take-or-pay component, for something like one-fifth
of global capacity? Huge.

The PBS plant in Thailand will consume approximately 14,000 tons
of succinic acid per year at full capacity — under the new
agreement, BioAmber could supply a minimum of 11,200 tons of
bioisuccinic acid if that PBS plant operates at full capacity.
BioAmber plans to supply PTTMCC from its 30,000 ton per year plant
under construction in Sarnia, Canada.

Putting BioAmber into a larger context

What is exactly so special about a company making roughly 65
million pounds of a little-known renewable chemical, with a
historically tiny global market?

After all, that is roughly equivalent, by tonnage, to a 10
million gallon first-gen biofuels plant — the kind that generally
closes down these days because of a lack of economies of scale.

There are two reasons that we are looking carefully at BioAmber.

First, as former DOE Biomass Program Manager Paul Bryan opined at
ABLC this year: “Focus on the right products first.” Bryan keyed
in on biosuccinic in his ABLC presentation, highlighting the
opportunities and advantages relating to the utilizing the oxygen
in biomass.

Second, BioAmber is avowedly pursuing a strategy based in careful
aggregation of strategic partners that bring investment and
offtake as well as financing relationships, while building further
applications for their molecules in work with R&D partners
that could be expected to translate into commercial partners down
the line. Which is to say, starting with an economically and
environmentally advantaged molecule and then working in
partnership with downstream customers to establish markets for
that molecule.

It’s very different than the conventional biobased fuels
strategy, which has been to set mandates to create market
certainty, and use that to create a favorable financing
environment, and encourage engagement with incumbents.

BioAmber’s first commercial plant in Sarnia: construction

Moving back to BioAmber, let’s look at the construction timeline
— which has shifted back 4-6 weeks. The company’s first commercial
has slipped into early 2015 unless the company can make up some
time, which it indicates it might.

BioAmber CEO Jean-François Huc reports: “We’ve completed over 60%
of the detailed engineering and are now focused on completing the
detailed piping and electrical instrumentation work…For most for
equipment purchases and work packages…we’re seeing bids there are
coming in on or slightly below budget…giving us an increasing
confidence that we can bring the plant construction in on budget.”

“To date we’ve lost approximately eight work days due to extreme
cold and snow. We’ve also identified the potential for delays in a
few key equipment deliveries. The current trend suggests that if
we do not recover the lost days due to weather moving forward and
we’re not able to mitigate the risks around the equipment delivery
dates, the project completion could be delayed by up to four to
six weeks.”

Commissioning

The commissioning period is estimated at five months — meaning
that the plant could be operating in steady-state as soon as the
end of the first half of 2015 — and BioAmber’s sales projections
for 2015 are in line with that.

Huc comments: “When you mechanically complete and you commission
and startup your plant, realistically you anticipate a three to
five month period, three months being aggressive and five months
being more conservative…Our expectation is that the plant would be
running in a continuous stable mode after five months and…we hope
to sell about 45% of the nameplate capacity in the first year.

BioAmber’s first commercial: customers

The company, meanwhile, has been hard at work on bringing on
customers. The combination of Vinmar and PTT contracts will tie up
nearly two-thirds of the plant’s nameplate capacity in 2015, and
the biosuccinic requirements of the Vinmar deal will more than use
the full capacity of the Sarnia plant (though Sarnia can be
expanded to as much as 50,000 metric tons).

Huc added: “We brought on 18 new customers in 2013 that will help
to base load Sarnia and we worked with a number of companies to
test our bio-succinic acid in new and emerging applications that
offer the prospect of significant growth.

New applications and markets

The key for BioAmber to reach beyond the limited direct market
for succinic acid is through the development of new markets —
using low-cost biosuccinic.

Huc comments: “Over the past year we worked with a number of
innovative companies that validated our Bio-SA in several new
applications.

“For example, in artificial leather they demonstrated that the
polyester polyol made with Bio-SA offers better aesthetics
including softer touch than the polyols made with adipic acid.
This market reportedly consumes 150,000 tonnes of adipic acid
annually. Another example is in foams made with Bio-SA and
recycled PET. The Bio-SA provided performance benefits to the
polyols that were made from recycled PET, including reduced
viscosity, increased density and tensile strength, reduced
brittleness and improved stability in addition to increased
renewable content. These foams have been developed for a number of
applications including insulation panels and the near-term market
is estimated at 15,000 to 20,000 tonnes per year but with
significant growth potential.

“Several coatings companies have also demonstrated that resins
and polyols made with the Bio-SA offer advantages over adipates in
paints and coatings. These advantages include better gloss
retention and higher renewable content. We now believe that the
total addressable market for Bio-SA in coatings is approximately
600,000 tonnes per year.

“Our goal is to sign supplier agreements with market innovators
in these emerging market segments and to announce product launches
incorporating Bio-SA over the coming year.”

The future BDO plant

Let’s look at BDO in some detail.

As BioAmber explained at the time of its IPO: “Succinic acid can
be used to manufacture a wide variety of products used every day,
including plastics, food additives and personal care products, and
can also be used as a building block for a number of derivative
chemicals. Today, petroleum-derived succinic acid is not used in
many potential applications because of its relatively high
production costs and selling price. We believe that our low-cost
production capability and our development of next-generation
bio-succinic derived products including 1,4 BDO, which is used to
produce polyesters, plastics, spandex and other products, will
provide us with access to a more than $10 billion market
opportunity.”

The Vinmar relationship. The BDO opportunity
signaled in the IPO became more vivid early this year when Vinmar
has committed to purchase, in a 15-year master off-take agreement,
100% of the BDO produced in a 100,000 ton per year capacity plant
that BioAmber plans to build in North America and commission in
2017, Under the terms agreement, Vinmar also plans to invest in
the BDO plant, taking a minority equity stake of at least 10%, and
has a right of first refusal to invest in and secure 100% of the
off-take from a second BDO plant.

More on Vinmar. Vinmar has been selling close to
50,000 tonnes of BDO per year for the past several years. Vinmar
also has project development and financing expertise having helped
several partners secure project financing by leveraging Vinmar’s
banking relationships and the take-or-pay agreements that they
sign.

Pricing: Huc reports: “At recent BDO prices and
to give you a sense of those the global average price over the
past three years was approximately $2,800 per metric tonne
according Tecnon OrbiChem data, the annual sales from this plant
would be approximately 280 million representing over 4 billion in
revenues over the term of the contract.”

Execution risk. Producing BDO from succinic at
scale, at commercially feasible rates — well, there’s work left to
do. BioAmber reports that “we’re continuing to work with our
exclusive partner Evonik to scale up and commercialize the
catalysts we have licensed from DuPont (DD).”

The timeline: Huc comments, “We’ve begun the
site selection process in North America, building on the site
selection process we had run a few years ago for Sarnia a lot, as
you can imagine the front-end of this BDO plant it’s just a big
succinic acid plant, so most of our requirements in terms of site
selection are identical to those we used in finally choosing
Sarnia…in parallel we’ll be working to see what kind of government
support we can secure for that project so, that has to dovetail
with a toll manufacturing facility coming online in the U.S. and a
successful startup of the Sarnia plant and ideally all those
things come together in the summer of 2015 so that we’re in a
position to move to a financial close with a group of lenders and
equity partners.

Cash burn

The company reports: “Our goal is to keep our cash burn under 20
million in 2014 while spending more money on BDO development and
engineering for the remainder of this year as we prepare to bring
the BDO toll manufacturing facility online next year.” The company
has $83.7 million cash in hand, after reporting a net loss for
2013 of $33M, after a $39M loss in 2012.

PTT and Myriant

We’ll be watching that 2017 date carefully, for another reason.
It may well suggest a completion date for a biosuccinic acid plant
that PTT has been investigating with Myriant. PTT has, since
January 2011, been a high-visibility strategic investor in
Myriant, putting $60M in the company a few years back — and
avowedly the companies have been signaling interest in PBS.

Reaction from BioAmber on the PTT deal

“This first succinic acid take-or-pay agreement is an important
milestone for BioAmber,” said Babette Pettersen, BioAmber’s Chief
Commercial Officer. “This contract guarantees significant sales
volume for our Sarnia plant during its first three years of
operation. PTTMCC is a major new buyer of bio-succinic acid and
locking up this substantial volume commitment will strengthen our
market leadership,” she added.